22/09/2010<br />SECURITIZATION<br />PRESENTED BY<br />Saketkumar<br />
SECURITIZATION<br />It stands for conversion of loans or loan recoveries into marketable paper or securities by SPV.<br />...
SECURITIZATION PROCESS <br />Selection of assets by the Originator <br />Packaging of  pool of loans and advances (assets)...
STRUCTURE OF SECURITIZATION<br />
PLAYERS  INVOLVED IN SECURITIZATION<br />1.     Originator: An entity making loans to borrowers or having receivables from...
SPV AND ITS ROLE <br />It is a legal entity created to fulfill the narrow, specific or temporary objectives. ie funding th...
WHY  ORIGINATOR  SECURITIZE <br />Off-balance sheet financing – remove illiquid assets.<br />Improves capital structure<br...
 INVESTOR VIEW POINT  <br />ADVANTAGE<br /> Opportunity to potentially earn a higher rate of return .<br />Opportunity to ...
CATEGORY OF SECURITIZATION<br />Assets backed securities :Those securities whose income is derived from pool of underlying...
EXAMPLE OF SECURITIZATION IN INDIA<br />First securitization deal in India between Citibank and GIC Mutual Fund in 1991 fo...
WHAT CAN BE SECURITIZED<br />All sorts of assets are securitized:<br />Auto loans<br />Student loans<br />Mortgages<br />C...
BENEFITS  TO FINANCIAL ENVIRONMENT<br />This bring the financial market and capital market together and hence increase the...
The Subprime Mortgage Securitization Process<br />Warehouse Lender<br />(makes short term loans to Issuer for purchase of ...
Presentation on securitization
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Presentation on securitization

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In this PPT i covered the processs of securitization, issues inv

Presentation on securitization

  1. 1. 22/09/2010<br />SECURITIZATION<br />PRESENTED BY<br />Saketkumar<br />
  2. 2. SECURITIZATION<br />It stands for conversion of loans or loan recoveries into marketable paper or securities by SPV.<br />By pooling assets, it diversifies and reduces risks of the portfolio and, with additional credit enhancement arrangement, can produce highly creditworthy instruments to market.<br />Isolating and efficiently allocating the risk.<br />It is selling the rights to cash flow from loans etc .<br />
  3. 3. SECURITIZATION PROCESS <br />Selection of assets by the Originator <br />Packaging of pool of loans and advances (assets) <br />Underwriting by underwriters. <br />Assigning or selling to of assets to SPV in return for cash <br />Conversion of the assets into divisible securities <br />SPV sells them to investors through private stock market in return for cash <br />Investors receive income and return of capital from the assets over the life time of the securities <br />The risk on the securities owned by investors is minimized as the securities are collateralized by assets <br />The difference between the rate of the borrowers and the return promised to investors is the servicing fee for originator and the SPV .<br />Assets to be securitized to be homogeneous in terms of underlying assets ,maturity period ,cash flow profile<br />
  4. 4. STRUCTURE OF SECURITIZATION<br />
  5. 5. PLAYERS INVOLVED IN SECURITIZATION<br />1. Originator: An entity making loans to borrowers or having receivables from customers<br /> 2. Special Purpose Vehicle: The entity which buys assets from Originator and packages them into security for further sale<br />3. Investment Bank : A body that is responsible for conducting the documentation work.<br />Credit Rating Agency: To provide value addition to security<br />Insurance Company / Underwriters: To provide cover against redemption risk to investor and / or under-subscription<br />Obligors: Companythat gives debt to other company as a result of borrowing.( debtor)<br />Investor: The party to whom securities are sold .<br />
  6. 6. SPV AND ITS ROLE <br />It is a legal entity created to fulfill the narrow, specific or temporary objectives. ie funding the assets.<br />SPV are typically used by companies to isolate the firm from financial risk and allow other investors to share the risk.<br />Intermediary <br />Helps in the pooling process <br />Holding of pooled securities as a repository <br />Bankruptcy remote transfer <br />
  7. 7. WHY ORIGINATOR SECURITIZE <br />Off-balance sheet financing – remove illiquid assets.<br />Improves capital structure<br />Extends credit pool<br />Reduces credit concentration<br />Risk management by risk transfers<br />Avoids interest rate risk<br />Improves accounting profits<br />
  8. 8. INVESTOR VIEW POINT <br />ADVANTAGE<br /> Opportunity to potentially earn a higher rate of return .<br />Opportunity to invest in a specific pool of high quality credit-enhanced assets .<br />Portfolio diversification .<br /> DISADVANTAGE<br />Prepayment by borrowers can lessen the earning through interest.<br />Currency interest rate fluctuations which affect the floating rates on ABS.<br />Maintenance obligations of the collateral are not met as given in the prospectus.<br />
  9. 9. CATEGORY OF SECURITIZATION<br />Assets backed securities :Those securities whose income is derived from pool of underlying assets. <br /> Example: payments from car loan, credit card. <br />Mortgage backed securities: Mortgage loans are purchased from banks and assembled into pools which become securities.<br />Credit debt obligation: <br /> CBO: Those backed b corporate bonds.<br /> CLO: Those backed by leveraged home loans.<br />
  10. 10. EXAMPLE OF SECURITIZATION IN INDIA<br />First securitization deal in India between Citibank and GIC Mutual Fund in 1991 for Rs 160 million.  <br />L&T raised Rs 4,090 mln through the securitization of future lease rentals to raise capital for its power plant in 1999.<br />Securitization of aircraft receivables by Jet Airways for Rs 16,000 mn in 2001 through offshore SPV. <br /> India’s largest securitization deal by ICICI bank of Rs 19,299 mn in 2007. The underlying asset pool was auto loan receivables <br />
  11. 11. WHAT CAN BE SECURITIZED<br />All sorts of assets are securitized:<br />Auto loans<br />Student loans<br />Mortgages<br />Credit card receivables<br />Lease payments<br />Accounts receivable.<br />
  12. 12. BENEFITS TO FINANCIAL ENVIRONMENT<br />This bring the financial market and capital market together and hence increase the power of capital market.<br />The securitization reduces the risk for the creditor so it will lead the lower cost of funding.<br />Agency and intermediation cost is reduced.<br />The rate of assets turnover in market increases. HFCs do securitize due to this the volume of the resources increases.<br />Component risk (credit ,liquidity, catastrophe) are segregated and distributed to the market intermediaries which absorb them and make market stable.<br />
  13. 13.
  14. 14. The Subprime Mortgage Securitization Process<br />Warehouse Lender<br />(makes short term loans to Issuer for purchase of mortgages)<br />Credit Rating Agency<br />Requests loan<br />Bank/Financial Institution<br />(Originator)<br />Mortgagor<br />(Borrower)<br />Arranger/<br />Issuer<br />Providesloan<br />Loan sold<br />Loans pooled and sold to Trust<br />SPV<br />(Trust)<br />Makes loan payments<br />Provides customer service to borrower<br />Servicer<br />(is employed by Trust to collect loan payments etc.)<br />issues securities<br />Remits loan payments to Trust and advances unpaid interest payments.<br />Investors<br />Adapted from: “Understanding the Securitization of Subprime Mortgage Credit’” Ashcraft and Schuermann, Federal Reserve Bank of New York Staff Report 318, March 2008.<br />

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